The road linking Wall Street and commercial banks has become a two-way thoroughfare.
Traders, capital markets specialists, and investment bankers who for years laughed at the staid culture of commercial banks are suddenly being lured to big banks by rich compensation packages, promises of strong capital support, and a new client base.
Wall Street firms are returning the favor in a more modest way by recruiting loan traders and specialists in equity swaps, options, and emerging markets - areas of expertise developed in the laboratories of some of the nation's most innovative commercial banks.
Regulatory Green Light
The migration of Wall Streeters to banks reflects two significant changes. Commercial banks have been given the regulatory go-ahead to offer capital-raising services previously off-limits to them, and they are willing to pay to develop the new areas.
"With their new profitability, many of the commercial banks are in a position to be aggressive in their recruiting, in some cases paying more than investment banks," said Emanuel Monogenis, a managing partner in financial services at Heidrick & Struggles, the executive search firm. "They aren't wasting time worrying about whether Wall Street types will disrupt the bank culture."
Innovative trading-oriented banks, such as Bankers Trust New York Corp. and J.P. Morgan & Co., have for years selectively recruited from such Wall Street stalwarts as Goldman Sachs, First Boston, and Morgan Stanley.
But in the last 12 months or so, they have been joined by a host of big commercial banks, including Citicorp, Chase Manhattan Corp., Chemical Banking Corp., NationsBank Corp., and the securities arm of Union Bank of Switzerland.
"We've been hiring dramatically from investment banks because the businesses we have been moving into require that kind of background," said David Browning, a veteran Citibank lender who earlier this year became managing director and head of structured finance at the bank's underwriting subsidiary.
The traditional rap against bringing aggressive outsiders to the marbled halls of commercial banks has been that they undermine a bank's conservative culture.
Fish out of Water
Traditional lenders and relationship managers envy the higher-paid newcomers, while the Wall Street recruits flaunt their independence or, alternatively, feel stifled by the bank's bureaucratic restrictiveness.
"You don't want these young tigers arriving and roaming around to establish their power base al the expense of the slow-moving bank mammals," joked Mr. Browning, noting that culture remains the biggest management challenge.
But he and others say that the issue has been muted by changes at both banks and Wall Street firms.
Banks are learning to better integrate the newcomers through careful training. bankers said. At the same time, Wall Street firms are putting a new emphasis on managerial control and quality-management programs - adapting some of the strengths and bureaucratic negatives long associated with commercial banks.
Several bankers and recruiters pointed to this month's appointment of Allen D. Wheat as president and chief operating officer of CS First Boston as a prime example of how the managerial styles are blending. Mr. Wheat built his reputation as a derivatives specialist and top manager at Bankers Trust, before leaving about two years ago for First Boston.
Allen Wheat's ascendancy is a sign that investment banks are recognizing the relatively higher level of managerial competence and managerial orderliness in the commercial banks," said Mr. Monogenis.
"He is well known for the way he handles people, the way he administers a group, the way he plans. That's something that has been lacking at many Wall Street houses.'
Morgan, meanwhile, is often cited as an exemplar of how a firm can preserve its traditional culture while developing new market capabilities in equities and fixed-income.
Despite a newfound willingness to go outside the bank for securities and investment banking talent, veteran Morganites maintain ultimate control over the new securities areas.
For example, Morgan's three regional fixed-income sales managers have all been recruited from outside firms, but the national sales manager to whom they report - as well as J.P. Morgan Securities' overall head of fixed income - are veteran Morgan men.
"The challenge is to blend the new people into a very supportive and customer-oriented culture, by keeping managers in charge who know how the place works," said one Morgan source, who asked not to be identified.
Mr. Browning at Citicorp agreed. "We've got to balance the newcomers' aggressiveness, hunger, and ability to work long hours - which is their strength - with our philosophy of |customers come first,'" he said.
Banks say that regulators helped them mute the cultural differences by requiring the new securities units to be segregated from the commercial bank's activities. That helps develop an atmosphere more congenial to Wall Street-trained experts.
"It's important to note that we are not part of the bank, we very much are running our business out of the securities dealership," said Robert S. Cohen, a managing director in charge of Chase Securities' corporate securities and derivative products group.
"Do we have problems with investment banking envy by traditional relationship managers? Sure we do," said Mr. Cohen, who joined the Chase Manhattan Corp. this summer after 14 years at CS First Boston. "Does a Wall Street firm have problems among their staffs with investment banking envy and sales and trading envy? Yes. The management problems are similar."
Right at Home
Wolfgang Demisch, a respected equity analyst who follows the aerospace and technology industries, joined Bankers Trust's securities arm this summer after a long career that included stints at First Boston, Morgan Stanley, Smith Barney, and UBS Securities.
"If you put a blindfold on, you wouldn't be able to tell the difference between this bank and those firms," he insisted.
Through various compensation plans and referral bonuses, banks also say they are creating teamwork between traditional loan officers and the new investment bankers that mirror operating procedures of Wall Street firms.
"The gap is closing dramatically because our client executives are very much doing the job of the coverage person within an investment bank and doing it as well, if not better," said Joel Glasky, who joined Chase Securities three years ago from Shearson Lehman Brothers to run its private placement group.
Mr. Glasky, who now also heads loan syndications, structured sales, and high-yield origination, also noted increasing synergies between traditional bank capital-raising products, such as loans, and investment banking products.
Indeed, bankers say they are beginning to convince some Wall Streeters they can thrive at a commercial bank by exploiting customer lists, capital, and an international network that is unknown by most Wall Street houses.
Powerful Sales Tools
"Among the crossover people, there is a general feeling that the synergy, the global reach, and capital here offer tremendous value as a customer vehicle," said Randolph W. Sides, who joined Chase Securities last month as deputy head of U.S. government securities from CS First Boston. "Your potential leverage within a holding company like Chase is huge."
Mr. Monogenis, the Heldrick& Struggle recruiter, says that investment banks, too, are beginning to feel threatened by the quiescent strengths of some of the commercial bank.
"Wall Street was always cynical about commercial banks' abilities or desire to use their authority with their customer bases and extend their influence," Mr. Monongenis said. "But they are now recognizing banks as powerhouses that are awakening. That is a brand new condition."